Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

Search Gold Prices
Gold Price
[Most Recent Quotes from www.kitco.com]
Our RSS Feed

Gold Updates by Mail

Enter your email address:

Follow Us on Twitter
« Kinross appointed to Russian government advisory council on foreign investment | Main | Snow-cialism »
Saturday
Feb272010

Are Stocks the way to play this bull?

Silver Gold and the HUI Chart 27 Feb 2010.JPG

We have long held the opinion that holding silver and gold mining stocks would give us a leveraged return to silver and gold prices and thus generate better returns from this bull market in the precious metals arena. Taking a quick look at the above chart we can see this it has not been the case for the last few years, which requires us to give our strategy a bit of a shake.

Its true that if we go further back in time and draw the chart again then we can see that the stocks have outperformed the precious metals. However our patience wears thin when the stocks have lagged behind the metals for so long and one begins to wonder if this is now the new trend and it could be entrenched this way for some time to come.

In our humble opinion there is no substitute for owning the physical metal as we have continuously recommended, with the associated mining stocks offering leverage to the metals in return for the risks that they carry with them. However the metals space has changed and we now have funds holding massive amounts of both gold and silver and they are acting as a proxy or a paper version of gold and silver ownership. Whether the funds have the amount of gold and silver that they purport to have is a discussion for another day, however, as a vehicle for traders to ply their trade, it fits the bill. So far these funds have more or less replicated the performance of the precious metals. Yes there are risks but the inherent dangers of mining are removed, geo-political tensions disappear, start-up is not an issue, mega doses of financing are not required, good people with the right experience are not required, etc.

Now, if an investor is looking for leverage to gold and silver prices why not substitute mining stocks for an options play on one of these funds. The need to know a mining company from top to bottom and keep up with their ever changing characteristics is time consuming to say the least. Is it worth the effort? The above chart suggests that we can research and analyze these companies until the cows come home, we are simply not getting a leveraged return on the effort and risks involved.

Taking it a step further, if the quality producing stocks that make up the gold bugs index cant keep up with the metal then what chance have the juniors got? The mantra of juniors, juniors have been trumpeted for some time but will they soar this time around? Historically the juniors have soared later on in the cycle but history does not always repeat itself. This is not 1980, believe it or not, and the circumstances, the investment environment, politics, economics, social aspirations, the transfer of wealth from west to east, the dissemination of knowledge, the speed of change, etc, have all changed since the last bull market.

As a suggestion for those who do want leverage to the precious metals bull, the gold and silver funds together with the careful application of options trades could be a possible solution for you. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for the faint hearted. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your money and its your call.

Our premium options trading service, SK Options Trading, has closed the last 7 trades, with an average gain of 51.17% in an average of 37 days per trade, why not drop by and take a peak.



For those interested in getting a bit more bang for your buck and adding a touch more excitement to your portfolio, then check out our Options Trading Service please click here.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.








PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments (5)

I am sorry, but thinking that gold shares in the small production/exploration companies is a bad idea is wrong. You just do not have any patience. I have been in this sector since 1998, and it simply takes time, and this bull market has time to run.
I spend a good amount of time per week, about 20 hours looking for what I perceive is the best, or has the best chances of success. It just takes time.

February 28, 2010 | Unregistered CommenterRF Meyer

What about warrants rather than options, since they do permit leverage to the gold mining stocks and a considerably longer time until expiry date? There are warrants all the way to 2017, 2016 and 2015 permitting one to ride out any temporary fluctuations in stock and precious metals prices as well as opportunities for buying on dips.
Also, what about the onset of mania when it becomes apparent that inflation is returning and the US$ is weakening?

February 28, 2010 | Unregistered CommenterJ. Jarvlepp

J. Jarvlepp

Its a good point about warrants, however if the stocks are not performing then the warrants on those stocks wont perform. Thats why we are suggesting a vehicle that does move with gold and the options provide the leverage. Its not investing its speculating, but so are the juniors.

Thanks for the input its very much appreciated and we are hoping to get more comments from our readers and who knows - an idea that is a real winner!

February 28, 2010 | Unregistered CommenterGold Prices

RF Meyer,

We take your point about being patient and we have said many times in the past that patience is not our strong point.

However, as the chart shows it was better to be in the metals than in stocks since 2004, thats 6 years of patience, hence we have raised the question.

March 1, 2010 | Unregistered CommenterGold Prices

THE DREAM

As I was standing in a checkout line in Walmart waiting to pay for a $30 gallon of milk, I took out one of my Gold Bullion Bars and plunked it down on the counter, calmly waiting for my half million US Dollars in change. Except for the eight bars of the Star Spangled Banner, the 19 toilet bowls that flushed in No Time for Sergeants unison, the constant wailing of a siren, and the gasp of the checkout girl who swallowed her bubble gum calling for her supervisor, -----there was dead silence for the first time in recorded history in Walmart. Little beady eyes glared out from every face underlined by grinding teeth and copious drooling saliva. The supervisor who finally appeared simply said to me, "Hey man, dis ain't skippy!! Wutt da **$#@## is ah suppozed ta do wit dis?!!???
It was then that I got a hernia putting the Bullion Bar back into my pocket;----and then I got murdered before I got out of Walmart's front door as all the fine folks crowded around me were saying, "Ain't nobody seen anythang,--unnerstan!!" After awakening in a cold sweat and having to change my shorts, I fell asleep again.

This time, I was back at Walmart standing at the same checkout counter; in front of the same bubble gum chewer, except the gallon of milk now cost $40. I took out a bright, shiny, newly minted 1 oz. Gold Canadian Maple Leaf to pay for the milk and by God, I got the same sound effects, this time attended by a brilliant spotlight zeroed in on the coin in my hand. The supervisor came over ranting and raving about, "You **$#@## rich people who were smart enough to plan ahead, work hard, and save, got everything and we po foke who were loyal and shopped here everyday spending all our money on these fine Chinese do dads just like Greenspan said to do,--- we ain't got nuttin,---it ain't fair!!" I quickly put the coin in my pocket and this time did make it out the front door, but was murdered in the parking lot by some druggies who were told by their pusher that paper money "wasn't any **$#@## good" and that he was only taking Gold for the smack he was pushing. More sweat; more dirty shorts; and back to sleep. Then---back again to Walmart for my $50 gallon of milk.

Since Gold didn't work no how, I decided to use some of the currencies that the financial advisors had said to save as they would be all going up in value as the US Dollar was redefining the meaning of a bottom that was "waaaay down dare."
The Yuan couldn't miss I thought, and handed a big roll of the stuff to the bubble gum chewer. "What's this?" she said. "That's Chinese money going up in value for all the Chinese do dads Walmart buys, so give me my milk please," I said politely.
"Ha, Ha, Ha, ---No way, Jose, --- we don't accept that stuff here." ( People standing in back of me were getting very impatient.)
OK,---how about a bunch of Euros---nope; Swiss Francs---nope; British Pounds? NO ! NO! NO! The Supervisor came over again and said, " What part a NO you don't unnerstan, boy?" This time I was more successful and didn't get killed, but my family and I were starving and the baby still didn't have any milk.

I was desperate, but my cunning brain was working overtime( without pay even). I decided to get some of this virtual GOLDMONEY stuff I'd heard about on the Internet and arranged it with one of my fungible COMEX Warehouse Depository Receipts. This was digital; this was computerized; this was cool; ---- couldn't miss---- so it was back to Walmart for my $60 gallon of milk.
"I can't accept that stuff," was the response I got. "Why not? It's as good as Gold!!!" I screamed back. "Because Mr. Wiseguy,----Walmart didn't sign the contract to accept GOLDMONEY, e-GOLD, or any of the others in our stores,---- something about allocated GOLD for all the accounts couldn't be proven, only unallocated is what they got." I ran screaming out of the store and woke up,----- you guessed it, -----more sweat, another pair of soiled shorts.

I was now REALLY, REALLY desperate!!!
I realized that I had done all the right things that all the smart guys had said to do, and the result----I WAS SCREWED!!!
OK---this was end of the rope time. I had to do something massive because the IRS had put a freeze on all my offshore accounts.
So much for all the advance planning.
I dug up all the boxes that Dad had left over from the time he went through this same thing in the 1930's.
I decided to get a LINE of CREDIT from a local bank that Walmart did business with and would recognize, thus cashing in my inheritance from Dad.
To my horror, a little later when I got to the bank, I was told that they were declaring something called an INDEFINITE BANKING HOLIDAY.
I didn't quite understand what that was, but the meaning was very clear,---NO Line of Credit, and NO access even to my inheritance which had just been deposited in the bank; ----and no $70 gallon of milk for the baby. There was only one thing left to do,---that which every American resorts to when the gov't is putting it to you---go see THE DON !!!

I went through all the usual hand kissing; and promises to do him a favor in the future, etc., etc., and was then asked what I had for collateral. I gave DON FUGGETABOUTIT all the Gold and Silver I had and surprizingly, he smiled warmly. He then brought in a wheelbarrel and filled it with $100 bills!! He then said to go & get the milk for the baby.
I got to Walmart just before closing at 10AM?? careening through the front doors with my money wheelbarrel. I put the $80 gallon of milk on the counter and started to pay for it, but was told I couldn't have the milk because the FED had devalued the US DOLLAR so much that IT WAS NOW COMPLETELY WORTHLESS PAPER.
The baby died; I went completely insane; ----but then came the best part----they fed me for free in the Nut House!!!
And then I woke up----OR DID I ???

Totally exhausted after sleeping, and shaking non-stop after my 18th cup of coffee and 5 packs of cigarettes, my wife's attempt at reassurance saying, "Don't worry honey, it'll all be OK." didn't seem to cut it. My mind was about to explode from the following question----
When all the Gold & Silver Bullion, Stocks, and Coins that all smart, prepared, and well saved people have appreciate in value to millions & millions of dollars,------how the hell do you take your profits since you'll be exchanging appreciated , valuable, precious metals & stocks for tons of mountains of worthless paper US Dollars that nobody wants and won't buy you the time of day, thus taking you from Multimillionaire to bankrupt pauper the instant the exchange is made???

March 2, 2010 | Unregistered CommenterR

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>